LEASEHOLDS: ALL THE ‘HOW’ YOU NEED TO KNOW ABOUT THEM

Apr 24, 2017

Lease properties, better known as leasehold properties are another form of ownership unique to England and Wales. Despite sometimes being tricky to understand and direct, they are a very common type of hold.

Approximately, 43% of properties sold across England and Wales are leasehold properties, so it is not a very uncommon or unknown way to buy a property. The confusion revolves around the outright ownership, but what many people forget is that they are buying the temporary right to the use the property. They are not buying the outright ownership like a freehold. So how do they work?

How long is the lease?

The length of the lease, on a leasehold property, can vary greatly. They used to start at between 90 and 125 years, but these days can start at 999 years. The lease will decline as the years go on, so naturally, you will find quite a few older leasehold properties come up for sale with short leases left. These can be quite problematical if you’re buying one with a mortgage. As a general rule of thumb, a residential property will a lease of 80 years remaining or less is frowned upon by mortgage lenders.

Service charges

When purchasing a leasehold property, there will be someone who owns the freehold as well. A bit like a tenant rents a property of a landlord. Whether the leasehold is one of many within a block of apartments or a just a handful within a converted house, you as a leaseholder will still have access to common areas such as the hallway that the freeholder still owns.

All leaseholders within the same block as you will be charged either a yearly or monthly fee to maintain and repair these common areas, usually through a property management company. These services usually included the ground rent (see below) and buildings insurance.

Leasehold houses

You may come across new build houses that are sold as leases rather than freeholds, which as well as having more complicated services charges and ground rents require more refined mortgages. When looking into buying a new build leasehold, it is always a good idea to read the small print and ask the developer who owns the freehold.

Ground rent

In the majority of cases, this a straight forward sum reflecting how you are a ‘tenant’ paying ‘rent’ to lease the property within the building. It is always advised to thoroughly check through the ground rent terms within the lease. It has been known to be an area where landlords/freeholders try and make money.

Sinking funds

Sinking funds are a contribution landlords ask leaseholders to adhere to, for when expensive items within a block of flat, such as the roof or gym need major works. This sinking fund/reserve is them used to cover such expenses.

Share of the freehold

Back in 2004, a law was introduced that enabled the leaseholders to get together and buy the freehold off the landlord and own a share of it, subject to there being enough leaseholders. If 50% of the flats in the building, who are qualifying tenants, participate and the building qualifies the landlord cannot refuse. This can make the properties more valuable, and enabled leaseholders to appoint their own management company or manage the buildings themselves.

Management

A property management company or agent is appointed and paid for by the freeholder to run, repair and maintain the common grounds. The leaseholders share the cost of this via the service charge (see above)

Buying a leasehold

When buying a leasehold, you are paying to transfer the lease agreement in your name and the freeholder/leaseholder will need to be aware of any changes being made. The original lease remains the same and includes the names of previous holders, which sometimes confuses people (it’s like a log book of who has previously lived there) but your solicitor will update the Land Registry that the lease has now been changed.